What is force majeure?
Lawyers around the world are currently asking the question as to whether the COVID-19 pandemic can be considered an event of force majeure. There is an important distinction between the approaches of common law and civil law jurisdictions here; under common law there is no doctrine of force majeure, it is simply a term used to describe contractual clauses that have the same intention (i.e. to relieve a party from performance of its contractual obligations where that performance is impacted by events outside its control).
Given that common law generally leaves the parties of a contract free to establish the terms of their contractual relationship, people in common law jurisdictions could be mistaken for thinking that, if a contract concluded under Luxembourg law does not include a force majeure clause, the other party can’t rely on force majeure as a means of relief. However, this is not the case in civil law jurisdictions such as Luxembourg, as force majeure is a concept that exists under law. Whilst the challenge for parties under common law is for them to sufficiently future proof their force majeure clauses (assuming they can’t rely on the concept of frustration), the challenge for contractual parties under civil law is to establish a case for force majeure (assuming there isn’t sufficient contractual coverage) after the event.
Establishing force majeure in Luxembourg
In the event that the contractual clauses in question do not cover the consequences of the COVID-19 pandemic, or that there is no force majeure clause in the contract, the question will be whether the legal principle of force majeure can be applied to the contract to restore a contractual balance.
Under Luxembourg law, an external event alone will not be enough to qualify it as force majeure; other conditions must be met. If force majeure is not contractually defined between the parties, then it must fulfill three criteria:
- extériorité (exteriority) - meaning that the event was external and not connected to either the contracting parties;
- irrésistibilité (unpreventability) - meaning that the impact of the event could not be mitigated by taking appropriate measures; and
- imprévisibilité (unpredictability) meaning that the event could not have been foreseen at the time of the conclusion of the agreement and that there was no reason to believe that it would happen.
The COVID-19 pandemic and the various government responses that could frustrate a party’s performance of its contractual obligations should satisfy the requirement for exteriority, but the requirements for unpreventability and unpredictability should be considered.
Irrésistibilité generally means that it is impossible to execute an obligation, and such impossibility must be total and final to satisfy force majeure, rather than just temporary or partial. One must also distinguish between the absolute impossibility of executing and circumstances which would make it more expensive for a party to execute.
Unlike extra-contractual (tortious) matters, which determine imprévisibilité by reference to the day of the harmful event, contractual matters determine the unpredictability at the time of the conclusion of the contract and not at the time of non-performance. So obligors only commit to compliance according to what was foreseeable at the time of conclusion of the agreement.
Can the COVID-19 pandemic and government response be considered as force majeure?
There is precedent that an epidemic alone is not sufficient to constitute a case of force majeure, as has been noted in the context of both the H1N1 virus and Ebola virus.
Applying doctrine and case law from such instances the irrésistibilité (unpreventability) criteria was found to be lacking, since the impossibility of executing the agreement was only temporary or partial, and the contracting partner would only have difficulties of execution or would be faced with circumstances that would make it more expensive. Consequently obligors were unable to prove force majeure by their failure to demonstrate that it was absolutely impossible to meet its obligations due to the health crisis situation.
Notwithstanding how difficult circumstances resulting from the COVID-19 pandemic may be, this may not in itself be sufficient to challenge the economics of contracts in the short term.
However, the pandemic combined with the strict measures taken by the Luxembourg governments and other governments to avoid the spread of the COVID-19 virus are likely to persist and could, at a given moment, allow the parties to suspend their contractual obligations under force majeure.
This has been confirmed by a recent decision of the Colmar Court of Appeal in France, which classified the risk of contagion by COVID -19 as force majeure (Colmar Court of Appeal, 6th ch., 12 March 2020, n° 20/01098). In this case, a foreign person showing symptoms of the virus who was subject to administrative detention was unable to attend a hearing following his appeal. This person had been in contact with people likely to be infected with the COVID-19 virus and was subject of a 14-day containment order. The Court decided that: "these exceptional circumstances, resulting in the absence of [the person] at today's hearing, are of the nature of force majeure, being external, unpredictable and irresistible, given the time limit imposed for ruling and the fact that, within this period, it will not be possible to ascertain the absence of risk of contagion and to have an escort authorised to drive MG to the hearing. In addition, the “CRA de Geispolheim” indicated that they did not have the equipment to hear Mr. G. during a videoconference, which means that such a solution is not possible for this audience either."
This decision demonstrated that while the pandemic alone was not sufficient to establish force majeure, it was sufficient when combined with other circumstances that made the execution of an obligation impossible.
There remain a number of challenges for businesses that wish to rely on force majeure in order to obtain relief from the performance of their contractual obligations due to the COVID-19 pandemic.
Ultimately, it will depend on the specifics of a given case, but as a general observation for companies operating in Luxembourg, they should all have followed the instructions of the Luxembourg government requiring employees to stay at home, which may have impacted productivity and profitability, and they will remain subject to this for an unknown period of time. What makes the COVID-19 pandemic unique is the fact that it is a truly global event. However, different sectors have been -and will continue to be- impacted in different ways and for many the question of whether force majeure can be established may be one that can only be properly assessed once we are on the road to recovery.